The Plaintiffs sold some of their shares in a special purpose acquisition company (SPAC) to a buyer. The transaction documents explicitly provided that the Plaintiffs’ remaining shares in the SPAC would be freely tradeable. After the sale was completed, the buyer announced a business combination with the Defendant. Correspondence from the related negotiations appeared to confirm the contention that the Plaintiffs’ new shares in the Defendant would be freely tradable. On that basis, the Plaintiffs agreed to the transaction which was then completed.

Subsequently, the Defendant took the position that the Plaintiffs’ shares were subject to trading restrictions and the Plaintiffs commenced proceedings in the Cayman Islands to determine the issue. The Defendant’s board of directors then called an EGM to resolve that the Plaintiffs’ shares are to be treated as restricted.

On this basis, the Plaintiffs made an ex parte  interim injunction application to restrain the Defendant from holding the EGM, on the grounds that:

1. the proposed resolution would alter class rights without the requisite consent in breach of the Defendant’s Articles of Association;
2. the Defendant’s directors called the EGM for an improper purpose – to benefit the majority shareholders and disadvantage the Plaintiffs – in breach of their duty to act for benefit of the company as a whole;
3. the directors’ actions constitute a breach of contract or there is an estoppel by convention; and
4. the calling of the EGM is abusive of the Plaintiffs’ pending proceedings as it would predetermine the precise issue to be determined by the Court.

The Court granted the injunction and held that:

1. There were serious issues to be tried. The Court confirmed that:
   1. the question as to whether a shareholder can be described as having the benefit of a class right is really a question of substance rather than labelling, in that a shareholder would be considered to have class rights if it enjoys certain rights which are different or separate from rights to which other shareholders in the company are entitled; and
   2. class rights attaching to a class of shares cannot be varied merely by a resolution of shareholders without the express agreement of the shareholders of that class.
2. The adequacy of damages as a remedy was not clear given there would likely be real difficulties in quantifying the Plaintiffs’ loss if no injunction was granted.
3. The balance of convenience favoured granting an injunction to ‘hold the ring’ until determination of the proceedings:
   1. there was no time pressure for the EGM to occur on the scheduled date or any particular future date; and
   2. the unlikelihood of the Defendant suffering any significant damage from the grant of the injunction.

The Court expressed concern that only the First Plaintiff was willing to offer a cross-undertaking, but not the Second Plaintiff, based on a mere assertion that the Second Plaintiff is a small company with limited assets.

That said, the Court was prepared to excuse the Second Plaintiff from providing a cross-undertaking for the time being based on the unusual circumstances before it, namely that:

1. the First Plaintiff was willing to give a cross-undertaking for the entirety of any loss to Defendant; and
2. it was very difficult to see what loss, if any, the injunction would cause to the Defendant.

However, the Court will revisit the question of the Second Plaintiff providing a cross-undertaking at the return date. The Court will consider any submissions that may be made by the Defendant and the Second Plaintiff is expected to provide substantive detailed evidence as to its financial position and submissions as to why the Court should continue to excuse it from providing a cross-undertaking.

This decision demonstrates the Cayman Islands Court’s willingness to intervene early in shareholder disputes where class rights and contractual expectations are at stake, rather than having to wind back the clock at some stage in the future. It also highlights the Court’s readiness to scrutinise directors’ motives, particularly where corporate actions risk undermining pending litigation.